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The strong stock-market rally, which has seen the S&P 500 rise 100 points since late August, has been marked by a significant lack of believers. Options trading is often a good measure of traders' sentiment, and some of it clearly is showing skepticism.

Consider the put-call ratio—put option volume divided by call option volume. With today's more sophisticated computers and data, one can also compute the weighted put-call ratio, which measures the dollars being spent on puts versus the amount being spent on calls. The weighted ratio is preferred by most experienced traders, but both ratios are usually relevant in predicting turns or confirming trends in the market. To smooth out "noise" in the data, one usually keeps a moving average of the ratios—say, 21 days or so.

WHEN OPTION VOLUME is large, the put-call ratio normally moves opposite the direction of the broad market. That is, as the market rises, the ratio falls, and vice versa.

A chart of the equity-only put-call ratio is shown on this page. This ratio encompasses all stock-option activity in millions of contracts per day. Normally, it is a very accurate gauge of the market, with lows in the put-call ratio corresponding to tops in the stock market and highs in the ratio corresponding to lows in the stock market. For example, you can see that the put-call ratio bottomed in early August, just as the stock market was making a short-term top.

However, during the rally of the past month, the put-call ratio rose. That is, put volume was dominating call volume. This is where the doubt shows through. Normally, in a rising market, traders buy calls—which can be used to buy stocks at a specific price that could turn out to be a bargain if the market climbs—and the ratio declines. However, in this case, a large number of puts were being purchased. It's highly likely that these puts were hedges. These buyers probably were long the stock market, but wanted protection against a downturn.

This shows skepticism about the rally.

There's precedent for this. In late 1999 and early 2000, institutional traders bought puts on the QQQ, the popular tech exchange-traded fund, to hedge their long positions in Internet stocks, which were experiencing a monster rally at the time. Eventually, it turned out, the hedgers were correct. About four months later—in April 2000—the QQQ plunged, rewarding the hedgers' skepticism.

Might the same be the case again this time? Perhaps, but probably not until no one wants to buy protection any longer.

Another indicator that hasn't exactly confirmed the September rally is the CBOE's Volatility Index, or VIX. For most of the past year, when the stock market has rallied strongly, the VIX has been below 14. But during this September rally, it remained above 14; last week it fell significantly below that level after the Fed announced that it would continue its massive bond-buying program.

Finally, the Investors Intelligence Advisors Sentiment showed roughly 37% bulls two weeks ago and 42% bulls last week, well below the 51% bullish reading seen when the market made its previous top, at the beginning of August. This is just more evidence of skepticism about the rally.

Now that the market has made new highs, it's likely that there will be many conversions among the doubters. The put-call ratio has already begun to fall, and now that the VIX is below 14, the market should have more upside. In May, after a similar 100-point rise in a short period of time, the S&P 500 continued on higher for another 40 points or so, just on the momentum.

Once again, when a strong rally is met with doubters, the rally probably has further gains ahead.

LAWRENCE McMILLAN is president of McMillan Analysis, a registered investment advisor that also publishes research and recommendations. www.optionstrategist.com.